SOURCE: uSell.com, Inc.

uSell.com, Inc.

May 16, 2016 16:00 ET

uSell.com Reports First Quarter 2016 Results

948% YOY Revenue Growth to $22.5 Million; Increase in Working Capital to $6.8 Million; Successful Launch of We Sell Cellular Auction Platform

NEW YORK, NY--(Marketwired - May 16, 2016) - uSell.com (OTCQB: USEL), a technology driven company focused on extracting the maximum value from used mobile devices, today reported results for the first quarter ended March 31, 2016.

Key Highlights:

  • Working capital increased from $5.6 million at December 31, 2015 to $6.8 million at March 31, 2016
  • Revenues increased by $20.3 million, or 948%, from $2.1 million for the three months ended March 31, 2015, to $22.5 million for the three months ended March 31, 2016
  • Loss from operations decreased $0.5 million, or 31%, from $1.5 million for the three months ended March 31, 2015, to $1.0 million for the three months ended March 31, 2016
  • Adjusted EBITDA, a non-GAAP financial measure, improved from a loss of $1.1 million for the three months ended March 31, 2015, to $0.4 million for the three months ended March 31, 20161
  • Adjusted EBITDA for the three months ended March 31, 2016, includes a $379,000 provision for slow moving and obsolete inventory, without which Adjusted EBITDA would have been slightly positive

The following table presents Adjusted EBITDA, a non-GAAP financial measure, and provides a reconciliation of Adjusted EBITDA to the directly comparable GAAP measure reported in the Company's consolidated financial statements:

     
  Three Months Ended  
  March 31,  
  2016     2015  
Net loss $ (2,091,000 )   $ (1,470,000 )
  Stock-based compensation expense   127,000       247,000  
  Depreciation and amortization   511,000       163,000  
  Interest expense   357,000       1,000  
  Interest and other income   -       (1,000 )
  Change in fair value of derivative liability   725,000       -  
Adjusted EBITDA $ (371,000 )   $ (1,060,000 )
               

During the quarter ended March 31, 2016 the company experienced gross margin pressure, primarily in the months of February and March. This was caused by global volatility in pricing related to 1) instability in China and Europe and 2) the unanticipated launch of the iPhone SE, Apple's first ever iPhone launched in the first quarter, which resulted in a speculative drop in the value of certain legacy iPhone models. After review, management decided that the most conservative position was to take a write down on certain inventory that the company was holding on March 31, 2016.

Nik Raman, Chief Executive Officer, stated, "While gross margins came under pressure in February and March due to unanticipated volatility in pricing, we believe that this is not a trend, as we have seen margins bounce back and stabilize in April and so far in May. Moving forward, we will mitigate such risk by focusing on increasing inventory turns through improved efficiency in the warehouse and by building out and servicing demand through automated technology. In April, we rebranded and re-launched the We Sell Cellular website located at www.wesellcellular.com, and in early May we ran our first We Sell Cellular auction. We are very pleased with the results, and continue to believe that our shift from offline to online will enable us to increase inventory turns and device margins over time."

On March 31, 2016, as anticipated uSell borrowed the final $2 million under its Note Purchase Agreement with its financial lending partner, BAM, and amended the terms of the agreement to offer more flexibility and greater access to liquidity. The following summarizes the changes made to the facility:

  • The EBITDA covenants will not apply until September 2017;
  • The amortization period of the principal will not commence until September 1, 2017;
  • uSell will get 75% credit for new purchase orders towards the borrowing base of the facility instead of the previous 50%; and
  • uSell will get a 90% credit for inventory in transit towards the borrowing base instead of the previous 75%
  • The interest rate was increased by one-quarter of one percent (25 basis points) from 13.0% to 13.25%

"The modifications to our lending agreement provide substantial benefits to the company," stated Raman. "The new structure greatly increases our access to liquidity and defers amortization payments for 18 months. This long term working capital provides us with ample opportunity to execute on our business plan and create long term equity value. With the additional capital, we will seek to open up new supply relationships to grow revenues while diversifying our vendor base."

Financial Results for the Quarter Ended March 31, 2016:
Total revenue was $22.5 million for the three months ended March 31, 2016, a 948% increase from $2.1 million for the prior year ago quarter.

This increase had two main driving factors: (1) an increasing percentage of volume from its legacy uSell.com business being recorded on a gross versus net basis since the launch of its Managed by uSell service in 2014, and (2) the acquisition of We Sell, which records all of its revenue on a gross basis.

Sales and marketing expense decreased $0.6 million, or 63%, from $1.0 million during the three months ended March 31, 2015 to $0.4 million during the three months ended March 31, 2016. With the WeSell acquisition and the company's newfound ability to source devices directly from carriers, retailers and manufacturers, its primary sales and marketing expenses have shifted from consumer marketing to paying out sales commissions. Management believes this shifting profile will enable the company to scale volume significantly while maintaining sales and marketing expense as a much lower percentage of sales than in prior years.

Operating loss for the three months ended March 31, 2016 was $1.0 million, an improvement of $0.5 million from a $1.5 million operating loss for the three months ended March 31, 2015.

Net loss for the three months ended March 31, 2016 was $2.1 million, an increase of $0.6 million from a $1.5 million net loss for the three months ended March 31, 2015. The resulting EPS improved to ($0.11), as compared to ($0.20) for the prior year ago quarter, due to the increase in shares outstanding from 7.5 million to 19.8 million.

Adjusted EBITDA loss for the three months ended March 31, 2016 was $0.4 million, an improvement of $0.7 million from a $1.1 million Adjusted EBITDA loss for the three months ended March 31, 2015.

At March 31, 2016, uSell.com had $0.5 million of cash and cash equivalents, $1.1 million of restricted cash and 20.1 million shares issued and outstanding.

Non-GAAP Financial Measure - Adjusted EBITDA
We make reference to "Adjusted EBITDA," a measure of financial performance not calculated in accordance with accounting principles generally accepted in the United States ("GAAP"). Management has included EBITDA because it believes that investors may find it useful to review our financial results as adjusted to exclude items as determined by management. Reconciliations of this non-GAAP financial measure to the most directly comparable GAAP financial measure, net loss, to the extent available without unreasonable effort, are set forth below. The Company defines Adjusted EBITDA as earnings or (loss) from continuing operations before the items noted in the table on page 1.

Management believes Adjusted EBITDA provides a meaningful representation of our operating performance that provides useful information to investors regarding our financial condition and results of operations. Adjusted EBITDA is commonly used by financial analysts and others to measure operating performance. Furthermore, management believes that this non-GAAP financial measure may provide investors with additional meaningful comparisons between current results and results of prior periods as they are expected to be reflective of our core ongoing business. However, while we consider Adjusted EBITDA to be an important measure of operating performance, Adjusted EBITDA and other non-GAAP financial measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Further, Adjusted EBITDA, as we define it, may not be comparable to EBITDA, or similarly titled measures, as defined by other companies.

Conference Call Details:
Date: Monday, May 16, 2016
Time: 4:30PM ET
Dial-in Number: (866) 320-0203
International Dial-in Number: (785) 424-1634
Webcast: www.InvestorCalendar.com

Participants are recommended to dial-in approximately 10 minutes prior to the start of the event. A replay of the call will be available approximately two hours after completion through June 16, 2016. To listen to the replay, dial (877) 481-4010 (domestic) or (919) 882-2331 (international).

About uSell.com, Inc.
uSell.com, Inc. is a technology driven company focused on extracting the maximum value from used mobile devices, at large scale. uSell acquires products from both individual consumers, on its website, uSell.com, and from major carriers, big box retailers, and manufacturers through its subsidiary, We Sell Cellular. These devices are then distributed globally, leveraging both a traditional sales force and an online marketplace where professional buyers of used smartphones compete to buy inventory in an on-demand fashion. Through participation on uSell's marketplace platforms and through interaction with uSell's salesforce, buyers can acquire high volumes of inventory in a cost effective manner, while minimizing risk.
Visit www.uSell.com and http://wesellcellular.com

Forward-Looking Statements
This press release includes forward-looking statements including statements regarding future gross margins, improving efficiencies including inventory turns, establishing new supply relationships, and future growth. The words "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "could," "target," "potential," "is likely," "will," "expect" and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. The results anticipated by any or all of these forward-looking statements might not occur. Important factors that could cause actual results to differ from those in the forward-looking statements include competition from large retail stores and wireless operators, the unanticipated issued with the integration of the We Sell business with uSell, and our ability to further or maintain our relationships with large wholesalers. Further information on our risk factors is contained in our filings with the SEC, including our Annual Report on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.

1. See discussion of Non-GAAP financial information later in this release.

 
uSell.com, Inc. and Subsidiaries
Consolidated Balance Sheets
 
  March 31,     December 31,  
  2016     2015  
  (unaudited)        
Assets              
Current Assets:              
Cash and cash equivalents $ 523,989     $ 1,047,786  
Restricted cash   1,075,308       801,230  
Accounts receivable, net   317,406       463,187  
Inventory   7,773,085       7,099,970  
Prepaid expenses and other current assets   180,139       297,023  
Total Current Assets   9,869,927       9,709,196  
               
Property and equipment, net   180,480       193,243  
Goodwill   8,448,759       8,406,561  
Intangible assets, net   4,686,930       5,043,972  
Capitalized technology, net   881,555       886,543  
Other assets   52,580       79,145  
               
Total Assets $ 24,120,231     $ 24,318,660  
               
Liabilities and Stockholders' Equity              
Current Liabilities:              
Accounts payable $ 1,966,570     $ 2,563,598  
Accrued expenses   769,303       729,160  
Deferred revenue   361,353       814,295  
Lease termination payable   -       5,000  
Total Current Liabilities   3,097,226       4,112,053  
               
Promissory note payable, net of current portion   6,739,291       5,087,043  
Placement rights derivative liability   1,855,000       1,130,000  
Total Liabilities   11,691,517       10,329,096  
               
Stockholders' Equity:              
               
Convertible Series A preferred stock; $0.0001 par value; 325,000 shares authorized; no shares issued and outstanding.   -       -  
Convertible Series B preferred stock; $0.0001 value per share; 4,000,000 shares authorized; no shares issued and outstanding.   -       -  
Convertible Series C preferred stock; $0.0001 value per share; 146,667 shares authorized; no shares issued and outstanding.   -       -  
Convertible Series E preferred stock; $0.0001 value per share; 103,232 shares authorized; no shares issued and outstanding   -       -  
Common stock; $0.0001 par value; 43,333,333 shares authorized; 20,101,999 and 19,751,999 shares issued and outstanding, respectively   2,011       1,976  
Additional paid in capital   69,192,277       68,662,578  
Accumulated deficit   (56,765,574 )     (54,674,990 )
Total Stockholders' Equity   12,428,714       13,989,564  
               
Total Liabilities and Stockholders' Equity $ 24,120,231     $ 24,318,660  
               
               
               
uSell.com, Inc. and Subsidiaries  
Consolidated Statements of Operations  
   
  Three Months Ended March 31,  
  2016     2015  
Revenue $ 22,452,148     $ 2,142,983  
               
Cost of Revenue   21,547,751       1,442,519  
               
Gross Profit   904,397       700,464  
               
Operating Expenses:              
  Sales and marketing   377,095       1,006,023  
  General and administrative   1,535,835       1,164,083  
    Total operating expenses   1,912,930       2,170,106  
Loss from Operations   (1,008,533 )     (1,469,642 )
               
Other (Expense) Income:              
  Interest income   -       532  
  Interest expense   (357,051 )     (817 )
  Change in fair value of placement rights derivative liability   (725,000 )     -  
Total Other Expense, Net   (1,082,051 )     (285 )
               
Net Loss $ (2,090,584 )   $ (1,469,927 )
               
Basic and Diluted Loss per Common Share:              
Net loss per common share - basic and diluted $ (0.11 )   $ (0.20 )
               
Weighted average number of common shares outstanding during the period - basic and diluted   19,751,999       7,533,817  
               
               
               
uSell.com, Inc. and Subsidiaries  
Consolidated Statements of Cash Flows  
   
  Three Months Ended
March 31,
 
  2016     2015  
CASH FLOWS FROM OPERATING ACTIVITIES:              
Net loss $ (2,090,584 )   $ (1,469,927 )
  Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:              
      Depreciation and amortization   511,294       163,035  
      Stock based compensation expense   127,234       246,541  
      Amortization of debt issue costs into interest expense   85,850       -  
      Change in fair value of placement rights derivative liability   725,000       -  
Changes in operating assets and liabilities:              
  Accounts receivable   145,781       (1,335 )
  Inventory   (715,313 )     (158,200 )
  Prepaid and other current assets   116,884       7,911  
  Other assets   690       -  
  Accounts payable   (597,028 )     (281,041 )
  Accrued expenses   40,143       352,752  
  Lease termination payable   (5,000 )        
  Deferred revenues   (452,942 )     26,079  
  Net Cash and Cash Equivalents Used In Operating Activities   (2,107,991 )     (1,114,185 )
               
CASH FLOWS FROM INVESTING ACTIVITIES:              
Website development costs   (136,501 )     (170,742 )
Restricted cash   (274,078 )     -  
Security deposits   25,875       -  
    Net Cash and Cash Equivalents Used In Investing Activities   (384,704 )     (170,742 )
               
CASH FLOWS FROM FINANCING ACTIVITIES:              
Proceeds from note payable   2,000,000       -  
Cash paid for debt issue costs   (31,102 )     -  
    Net Cash and Cash Equivalents Provided By Financing Activities   1,968,898       -  
               
Net Decrease in Cash and Cash Equivalents   (523,797 )     (1,284,927 )
Cash and Cash Equivalents - Beginning of Period   1,047,786       2,414,757  
               
Cash and Cash Equivalents - End of Period $ 523,989     $ 1,129,830  
               
SUPPLEMENTARY CASH FLOW INFORMATION:              
Cash Paid During the Period for:              
    Interest $ 201,792     $ -  
    Taxes $ -     $ -  
               
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:              
Adjustment to goodwill for inventory valuation $ 42,198     $ -  
Common stock issued in connection with note payable $ 402,500     $ -  
               

Contact Information

  • Contact Information
    Nik Raman
    Chief Executive Officer
    p212-213-6805